NEUBERGER BERMAN

ASSET ALLOCATION COMMITTEE OUTLOOK 4Q2016 CITIUS, ALTIUS, FORTIUS? MARKETS REACH OLYMPIAN HEIGHTS The Asset Allocation Committee went slightly underweight U.S. equities this quarter, as valuations look increasingly stretched and bond yields edge upwards. Another weak earnings season could trigger volatility, and bond yields may be too low to provide much in the way of diversification or a tactical cushion. While some value remains in European equities, commodities and emerging markets, the case for lowering overall equity risk is getting stronger.

ABOUT THE

ASSET ALLOCATION COMMITTEE Neuberger Berman’s Asset Allocation Committee meets every quarter to poll its members on their outlook for the next 12 months on each of the asset classes noted and, through debate and discussion, to refine our market outlook. The panel covers the gamut of investments and markets, bringing together diverse industry knowledge, with an average of 24 years of experience.

COMMITTEE MEMBERS Joseph V. Amato President and Chief Investment Officer Erik L. Knutzen, CFA, CAIA Chief Investment Officer—Multi-Asset Class

David G. Kupperman, PhD Co-Head, NB Alternative Investment Management Ugo Lancioni Head of Global Currency

Thanos Bardas, PhD Portfolio Manager, Head of Global Rates

Wai Lee, PhD Head of the Quantitative Investment Group, Director of Research

Alan H. Dorsey, CFA Chief Risk Officer

Brad Tank Chief Investment Officer—Fixed Income

Richard Gardiner Head of Investment Strategy Group, Chief Investment Officer—Neuberger Berman Trust Company

Anthony D. Tutrone Global Head of Alternatives

Ajay Singh Jain, CFA Head of Multi-Asset Class Portfolio Management

4Q2016 ASSET ALLOCATION COMMITTEE OUTLOOK 1

Market Views Based on 12-Month Outlook for Each Asset Class

Below-Normal Return Outlook

12-month Outlook in Line with 5- to 7- Year Annual Return Outlook

Above-Normal Return Outlook

FIXED INCOME Global Bonds Investment Grade Fixed Income U.S. Government / Agency Investment Grade Corporates Agency MBS Securitized ABS / CMBS Municipal Bonds U.S. TIPS High Yield Fixed Income Emerging Markets Debt

EQUITY Global Equities U.S. All Cap U.S. Large Cap U.S. Small and Mid Cap MLPs Developed Market—Non-U.S. Equities Emerging Markets Equities Public Real Estate

REAL AND ALTERNATIVE ASSETS Commodities Lower Volatility Hedge Funds Directional Hedge Funds Private Equity

Views expressed herein are generally those of Neuberger Berman’s Asset Allocation Committee and do not reflect the views of the firm as a whole. Neuberger Berman advisors and portfolio managers may make recommendations or take positions contrary to the views expressed. Nothing herein constitutes a prediction or projection of future events or future market behavior. Due to a variety of factors, actual events or market behavior may differ significantly from any views expressed. See additional disclosures at the end of this material, which are an important part of this presentation.

2 ASSET ALLOCATION COMMITTEE OUTLOOK 4Q2016

Regional Focus Fixed Income, Equities and Currency

Below-Normal

Neutral

Above-Normal

REGIONAL FIXED INCOME U.S. Treasury 10 Year Bunds 10 Year

This is the first time in this cycle on the committee that its view on U.S. equities has fallen below neutral.

Gilts 10 Year JGBs 10 Year EMD Local Sovereign EMD Hard Sovereign EMD Hard Corporates

REGIONAL EQUITIES Europe Japan China Russia India Brazil CURRENCY* Dollar Euro Yen Pound Swiss Franc EM FX (broad basket)

*The currency forecasts are not against the U.S. dollar but stated against the other major currencies. As such, the forecasts should be seen as relative value forecasts and not directional U.S. dollar pair forecasts. The Committee members are polled on the asset classes listed above and these discretionary views are representative of an Asset Allocation Committee consensus. All views reflect a one-year outlook.

ERIK L. KNUTZEN, CFA, CAIA CHIEF INVESTMENT OFFICER— MULTI-ASSET CLASS

4Q2016 ASSET ALLOCATION COMMITTEE OUTLOOK 3

Erik L. Knutzen, CFA, CAIA Chief Investment Officer—Multi-Asset Class

On August 11 all three of the main large-cap U.S. equity indices reached new record highs. It was the first time this had happened on the same day since 1999, and an appropriate time to “raise the bar,” midway through the first week of the Rio Olympics. And markets have not been performing like narrow specialists, either, but more like decathlon all-rounders: This summer saw bond yields pushing ever lower as equities vaulted ever higher. The limitations of the human body mean that one day we may get an Olympics where no records are broken. Similarly, economic fundamentals in theory put a limit on how much “faster, higher and stronger” financial markets can go, as the Latin of the Olympic motto puts it. At Rio, 27 new world records were set. In markets, the Asset Allocation Committee thinks the limit may be closer. The committee has held an underweight view on investment-grade bonds for some time. This quarter, they were joined by all flavors of the U.S. equity market, albeit in the category of “slightly underweight.” To be clear, this was a marginal decision, and U.S. equities still look attractive relative to the return outlook from government bonds—but it is the first time in this unusually long cycle that the committee’s view on this asset class has fallen below neutral.

is in line with historical averages—but that the earnings growth required to satisfy them seems optimistic in the current environment. Brad Tank observed that our view that we are still in the middle of the business cycle had helped us exploit the panic-stricken sell-off at the beginning of 2016, but that now it was “crunch time” for earnings growth as markets start to “lose patience” with the ongoing profits recession.

What concerns committee members are valuations. When we look at non-U.S. developed world equities, which we maintained as a slight overweight, we see tailwinds from accommodative monetary policy, improving earnings and compelling relative value between earnings and dividend yields and exceptionally low core government bond yields.

S&P 500 earnings per share look set to come in at around $118 – $120. A year ago the expectation was for something more like $125 – $130, which is now the projection for 2017 among even the more bullish analysts. That would represent less than half the growth required to make sense of today’s 17 times forward earnings valuation, leaving us with a multiple somewhere closer to 21 times, which would begin to look stretched. The current Q3 earnings season is shaping up to be one of the most important in two years.

In the U.S., the case is less clear. The issue is not that current multiples are too high in themselves—a 17 times forward price-to-earnings ratio

4 ASSET ALLOCATION COMMITTEE OUTLOOK 4Q2016

UP FOR DEBATE: THE NEXT PRESIDENT OF THE U.S. The market expects a Clinton Presidency and a Republican House. What if the market is wrong? “A Clinton victory may not be as clearly discounted as the U.K. ‘Remain’ vote was.” —Richard Gardiner Head of Investment Strategy Group & CIO­— Neuberger Berman Trust Company

What could be the outcome of a Trump victory in the race for the Presidency, or a Democrat victory in the House? Neither scenario looks market-friendly. The latter would probably see Clinton’s administration pulled further to the higher-tax, tighter-regulating left, under the influence of Senator Elizabeth Warren. The former could trigger capital flight from over-valued U.S. dollar assets.

While the Asset Allocation Committee didn’t want to play the game of tipping this sector or that asset class depending on which candidate emerges victorious in November’s U.S. Presidential election, that still left room for views to be expressed.

A balance of power means a continuation of the deadlocked status quo, which, while not ideal, would at least not likely be immediately damaging. But a loss of balance would likely be volatile simply because there remains so much uncertainty about policy.

There may or may not have been a consensus on who would— let alone should—be the next POTUS, but there was a consensus about what the market expects.

Trump hasn’t been clear about much of what he’d do, and the things he has been clear about are “cartoonish,” as one committee member put it. Our municipal bonds team has been listening carefully to statements on tax policy, for example, and finds that Trump changes his position from one week to the next. On the other hand, as another member added, can you really hang your hat on Clinton’s statements on drug pricing policy in response to the EpiPen controversy, either?

“Markets are clearly discounting a Clinton Presidency with the Republicans retaining the House of Representatives,” as Brad Tank put it. “That’s an outcome that would explain and ultimately support the kind of tranquility we’ve seen in markets over the summer.” In general this was felt to be a fair reflection of the challenge that the “Electoral College math” presents to Donald Trump’s campaign, regardless of how the nationwide popular vote turns out. Some AAC members pointed to an interesting contrast with the summer’s Brexit referendum, however. Brexit was genuinely felt to be an outside probability by the elites and the commentariat in the U.K., and this came through in betting markets: in terms of the weight of money gambled, “Remain” was coming in as 70 – 80% likely to prevail; but in terms of the number of bets made, “Leave” was in fact edging it. To put it crudely, wealth owners couldn’t understand why anyone would vote to leave the E.U. The U.S. Presidential election is arguably quite different: while much of the Republican party elite isn’t happy with Trump’s candidacy, there is some evidence that the broader American establishment, such as small business owners, can be quite enthused by him. This may be reflected in how the possibility of a Trump White House is being discounted in the markets.

There was one perceived positive that could come from a clearer result, and that was an infrastructure spending program. Quite apart from the incipient trend for global authorities to consider replacing monetary stimulus with fiscal stimulus and reform, breaking the partisan logjam in Washington could help ensure that such a program is saved from being bundled up with political footballs such as corporate tax reform. Moreover, infrastructure seems likely to appeal equally to a “Mr. Real Estate” who wants to “Make America Great Again” and a Democrat who has promised “the biggest investment in new, good-paying jobs since World War II.”

4Q2016 ASSET ALLOCATION COMMITTEE OUTLOOK 5

Of course one must take into account the unusual amount of—as it were—artificial performance enhancement going on in the form of quantitative easing and low interest rates. The recent hawkish tone from some Federal Reserve Open Market Committee members is probably designed to prevent undue inflation of financial asset values, but it only serves to balance the Fed’s dovish actions in delaying its second rate hike, not to mention the increasingly aggressive stances of the Bank of Japan, the Bank of England and the European Central Bank. This helps make sense of the apparent anomaly of ever lower bond yields paired with ever higher equity markets. Those yields provide the discount rates with which we value future cash flows, and the lower they go, the more expensive equities look given the same level of expected earnings. In other words, some of the multiple expansion we have seen so far is attributable to lower bond yields rather than higher earnings forecasts, which, along with the ever-shortening list of sensible alternatives, helps explain why equity markets have so far been patient with earnings disappointments. Joe Amato was among those who thought current multiples could be maintained should bond yields remain low. “But the prospect of another earnings disappointment in an environment of rising yields makes me cautious,” he added. Yields indeed appear to be on their way up. So does the Libor rate, notwithstanding the Fed’s decision to hold off on its next rate hike.

In short, despite low inflation in goods and services, the world of financial assets appears to be a fully priced place. We are a long way from where we were just nine months ago, when pockets of compelling value were opening up in a lot of places. But does that mean we are in a value-free world? Our expressed views suggest not. In fact we have more slightly overweight positions this quarter than we did last time around. We moved from slightly overweight to neutral in high yield, but again this was a marginal decision and discussion on the committee revealed plenty of room for debate. Brad Tank observed that, just as a lot of the downward move through 2015 had been concentrated in the energy sector, so had much of the rebound this year. There was still room for spreads to tighten in other sectors, he argued—and even once that had happened a rotation from bonds into bank loans could still make sense, as spreads in the latter have seen much less tightening.

“In order to fulfil the current 17-times forward earnings valuation, we need to see 15% earnings growth over the next 12 months, and there are a lot of reasons to doubt that that’s possible. If we don’t see that earnings growth, the forward price-to-earnings ratio climbs to 20 or 21 times, which looks very stretched.” – Erik L. Knutzen, CFA, CAIA, Chief Investment Officer—Multi-Asset Class

This is a reminder that these are issues not only of valuation, but also of portfolio risk management. Like swimmers, pole-vaulters and sprinters all setting world records at the same Olympics, the positive correlation of bond and equity markets feels great on the way up. It is not very helpful on the way down, however. In recent years, bonds have tended to perform well when investors became risk averse and equity markets declined, but this time around bond yields may already be too low for those investors to feel they offer a genuine tactical cushion. This is something Wai Lee is picking up in his team’s quantitative tactical models, which are not only suggesting that portfolio volatility should be higher than it has been recently, but are also supportive of a slight underweight in bonds—a signal he hasn’t seen for a long time and which he puts down to stretched fundamentals, which can overwhelm their long-term diversification benefits. It’s also worth noting, as Richard Gardiner did, that ”alternative yield sources” such as income-producing equities have seen their valuations similarly inflated partly due to flows away from low and negative yields in bond markets. Committee members agree that investors may have lost sight of just how risky these positions have now become.

Against that, Thanos Bardas acknowledged that the energy sector’s return of 25% for the first three quarters of 2016 has indeed been extraordinary, but added that a 15% return for the market as a whole hardly counts as a dawdle. He observed that high-yield spreads remain above their long-term averages, however, and way above the tight levels seen in 2006 – 07, which may provide long-term investors an incentive to buy on any dips. Elsewhere, we continue to favor private debt, which offers attractive value relative to private and public equity, as well as solid fundamentals in the shape of modest leverage, conservative capital structures and low rates. We also maintained our slightly overweight position in non-U.S. developed equity markets, held our neutral view onmaster limited partnerships (MLPs) despite strong recent performance, moved from neutral to overweight in commodities and emerging market equities, and consolidated our overweight in hedge funds.

6 ASSET ALLOCATION COMMITTEE OUTLOOK 4Q2016

UP FOR DEBATE: U.S. INFLATION AND THE FED Inflation has been the dog that did not bark in 2016. But is it about to bare its teeth? “It’s one thing to talk about inflation expectations, but actually experiencing it in the data is another thing entirely.” —Thanos Bardas, PhD Portfolio Manager, Head of Global Rates

Our underweight in investment-grade bonds is an indication that the Asset Allocation Committee feels that yields neither adequately compensate for risk nor have much room to go lower. There was some debate, however, about how fast the Federal Reserve will want—or be forced—to raise rates. Thanos Bardas acknowledged the rather more hawkish language coming from some Federal Open Market Committee (FOMC) members recently, but argued that this was about managing market expectations and controlling asset-price inflation rather than the actual path of rate hikes. In the real world, data and sentiment have been softening, oil’s upward momentum has stalled, supply is coming onstream fast in the U.S. housing market, breakeven inflation indicators from the bond markets remain subdued, and the commentary from Jackson Hole in August was more “Thank goodness we don’t have negative rates!” than “Let’s seriously consider nominal-GDP targets.” Thanos said that his team expected the second rate hike to come in December, followed by one or two in 2017—but that the 85% probability he assigned to a 2016 hike last quarter has come down. “The Fed’s traditional models are probably all suggesting that rates should be higher and rising,” he said. “But well-known structural issues are rendering those models unfit for purpose— an aging demographic, faltering productivity growth. Those are coming through in wage dynamics: seven years of employment expansion is not creating the wage inflation one might have anticipated under the traditional models.”

Joe Amato and Ugo Lancioni made the case for keeping a close eye on U.S. inflation. Joe pointed to reports that companies are struggling to find workers to weigh against the recent apparent slowdown in job creation, and acknowledged that businesses may not have the pricing power to pass input costs onto consumers. But he argued that there had to be risk associated with the tick up in year-on-year energy inflation, which is set to increase in Q4 as the anniversary of last year’s big drop in gasoline prices approaches. Brad Tank and Thanos agreed, but emphasized that markets had shifted their attention, first from “Fedspeak,” and then from implied expectations, and have become reluctant to move until they feel real evidence of inflation coming through in the month-on-month data. “The market will have to see inflation,” as Brad put it, “because it has become ever more convinced that inflation is impossible to produce.” Richard Gardiner noted that this in itself could present risk. “It’s important for investors to step back and consider the difference between the odds of an event happening and the ramifications of an event happening,” he explained. “The odds may favor low inflation and a dovish Fed, but an inflation uptick or a Fed hike could have damaging effects on portfolios, and therefore we believe it is helpful to analyze and consider adjusting portfolios to prepare for that possibility.” Indeed, everyone agreed that early signs were there in the recent pick-up in both Libor and longer-dated yields, not just in the U.S. but globally, and that this could signal an opportunity in inflationsensitive assets that have yet to respond so strongly. While realized inflation has struggled to gain traction this year, inflation expectations priced into these assets remain even lower, suggesting that they have yet to respond even to price rises that are already moving through the system.

4Q2016 ASSET ALLOCATION COMMITTEE OUTLOOK 7

UP FOR DEBATE: EMERGING MARKETS Low rates support EM, fundamentals also turning.

“Infrastructure spending is on the agenda. If we get it one might expect it to be beneficial for emerging markets.” —Joseph V. Amato President and Chief Investment Officer

The Asset Allocation Committee held its neutral position in emerging markets debt but moved overweight in emerging market equities. Some might see a contradiction with the move to go slightly underweight U.S. equities. Part of the explanation comes from the delayed rate hikes and weaker dollar that would likely follow a poor Q3 U.S. earnings season. These could be supportive of emerging market valuations, and a good part of the rally they have enjoyed already in 2016 has come from dollar weakness feeding into carry trades. The stubborn strength of the Japanese yen has also eased pressure on Chinese and other Asian industry. In addition, emerging markets still look relatively cheap despite this year’s rally: equities remain flat or down over five years; and the currencies have been depreciating for a similar period. Are there fundamental supports, too? Brad Tank reported that some of the key factors in our Emerging Markets Debt team’s outlook are moving averages of economic growth: their general thesis is that when the growth of emerging market economies begins to diverge positively from that of the developed economies, it’s an opportune time to overweight emerging markets. The last two quarters have given them some cause for optimism. “Enthusiasm is tempered a little by the fact that this divergence is really due to a bottoming-out of growth rates in some of the more challenged, commodities-focused economies,” Brad clarified. Joe Amato wondered whether sluggish global growth was necessarily a big threat, pointing to renewed emphasis on fiscal policy as the solution, and the role of infrastructure spending within that. “If we get it one might expect it to be beneficial for commodities and for emerging markets,” he argued.

Some might see contradictions here. Commodities and MLPs are a significant part of the U.S. equity markets, which we have at slightly underweight. And it is difficult to imagine emerging markets performing well in the absence of the growth that would also support U.S. stocks. Once again, part of the explanation is that these are marginal views. Another is that the delayed rate hikes and weaker dollar that would likely follow a poor Q3 U.S. earnings season could be supportive of commodity and emerging market valuations. (While we maintain an overweight in the dollar, that reflects a marginal, tactical view rather than an expectation for the sort of renewed strength that would pose a significant risk to global assets.) Finally, it simply reflects relative valuations: some markets enjoy more of a cushion against the downside, and more room on the upside, than others. Importantly, this suggests MLPs still have the potential to provide decent value for income- or yield-seeking investors relative to bonds and other alternative yield sources from the equity markets such as highyielding stocks and, especially REITS, which we downgraded to slightly underweight. While REITS still represent value relative to investmentgrade bonds, they are beginning to look stretched based on their own historical multiples, and next to other real-asset income generators such as MLPs. Despite strong performance through Q2 and Q3 of this year, MLPs are still down 4% annualized over the past three years, versus a 15% annualized return from REITS. Nonetheless, overall market valuations are undeniably high, and, as Wai Lee’s models indicate, that makes overall market risk levels high, too. When volatility is so low and correlations so high, the environment could be primed for the sort of shock that relieves the pressure—but in doing so, generates a spike in volatility followed by a breakdown in correlations. As the change in our view on hedge funds suggests, in this environment we believe there is a big role for long/short strategies, risk-premium strategies and other relative value approaches to investing—albeit with a lot of caution around event-driven and activist equity strategies. These have the potential to eke out positive returns in this tightly correlated environment while offering more attractive upside than straightforward beta-oriented strategies, should volatility strike.

8 ASSET ALLOCATION COMMITTEE OUTLOOK 4Q2016

FIXED INCOME

SIGNS OF RISING YIELDS AND CURVE-STEEPENING FEED INTO RISK-MARKET VOLATILITY

Global Fixed Income Treasuries: The committee upgraded U.S. Treasuries from underweight to slight underweight, after a combination of global growth concerns, weak inflation and central bank easing policies abroad supported demand and drove yields lower. Monetary policy in Europe and Japan continues to keep a lid on yields, and while inflation could surprise, markets have become more patient with the Fed and will need to see evidence before they act decisively. Absent large negative shocks to growth, inflation and labor markets, the committee expects one rate hike this year, likely in December. FED HIKE IMPLIED PROBABILITIES HAVE MOVED UP AND DOWN IN 2016…BUT MOSTLY DOWN

30

1.6 1.4

25

1.2 20 1.0 15

10 Sep-15

0.8

Nov-15

PROBABILITY OF ONE 25-BASIS-POINT RATE INCREASE IN JUNE, JULY, SEPTEMBER, NOVEMBER AND DECEMBER 2016, IMPLIED BY FED FUND FUTURES PRICING

Jan-16

Mar-16

May-16

Jul-16

0.6 Sep-16

CBOE Market Volatility Index— Price—Close or Current Intraday (left side)

100

United States—Government Yield— 10 Year Daily minus United States—Government Yield— 2 Year Daily (Percentage points, right side)

80 Source: Bloomberg. 60 40 20 0 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 June July Source: Bloomberg.

September November

December

Developed Market Non-U.S. Debt: Negative interest rate policies being implemented by the likes of the European Central Bank and Bank of Japan have driven yields lower. However, there is no strong evidence that easing has worked in Japan or that inflation has picked up in Europe, despite growth expectations improving somewhat this year. The ECB left its policy unchanged at its meeting in September, but it maintains its commitment to achieving inflation below but close to 2%. The committee believes that the risk of a reversal in yields, with a loss of faith in monetary policy, could destabilize markets and prove costly for investors.

High Yield Fixed Income The committee downgraded High Yield from slight overweight to neutral. Though there may still be some room to run in credit, as spreads are within historical ranges, the committee reduced its outlook given the strong run from the asset class since March this year. Security selection remains important, especially in the energy sector, where valuations are high among companies viewed as “survivors” amid the volatility in oil prices.

4Q2016 ASSET ALLOCATION COMMITTEE OUTLOOK 9

Emerging Markets Debt We maintain a neutral stance on emerging markets debt. The growth differential between emerging and developed economies is showing signs of bottoming out and we expect further improvements in the coming year as growth recovers from a very low base in countries such as Brazil and Russia. Inflation remains at historically low levels, while current accounts and external debt ratios are at reasonable levels. We favor local bonds and currencies, and within hard currency we prefer sovereigns over corporates on valuations.

S&P 500 INDEX VALUATION MEASURES VERSUS 10- AND 20-YEAR AVERAGES

8/31/16

20-YEAR AVERAGE

10-YEAR AVERAGE

Forward P/E

16.9X

17.2X

14.3X

Trailing P/E

18.03X

18.02X

14.95X

Cape

27.2X

27.02X

22.9X

Div. Yield

2.0%

1.8%

2.1%

U.S. Equities

P/B

2.7X

2.9X

2.3X

The committee downgraded its view on all U.S. equity markets to slight underweight from neutral, as valuations are at the high end of historical ranges and earnings have continued to be revised downwards. Overall market earnings have been flat for almost three years and investors may be running out of patience. Moreover, margins could come under pressure should wages continue to increase, as long as companies have limited pricing power to pass through higher costs to consumers. Uncertainty around the U.S. election outcome was another argument for the downgrade, as the committee believed caution was warranted around polling and probabilities with some time remaining before election day. While low bond yields and a lack of appealing alternatives to equities could sustain current multiples for some time, over the medium term, committee members agree that earnings need to improve to support these valuations.

P/CF

11.03X

10.2X

8.7X

EY Spread

1.5%

-0.5%

1.2%

EQUITY

VALUATION MEASURE

In line

Overvalued

Source: Bloomberg; Strategas; FactSet.

ANALYSTS’ S&P 500 EARNINGS ESTIMATES ($ PER SHARE) Earnings essentially flat for 3 years ‘16 ‘17

150

‘15 ‘14

120

U.S. EQUITIES: NOT OVERVALUED, BUT CLOSER TO FULLY VALUED IN A LOW-EARNINGS GROWTH ENVIRONMENT

‘09 ‘08

S&P 500 FORWARD P/E RATIO, 1996 – 2016

90

‘10

‘06

‘05

‘01 ‘02

60

‘98 ‘97 ‘96

+1 Std. dev.: 21.2x 20

30 ‘96

20-Year Average: 17.2x

‘04

‘99 ‘00 ‘03

‘00

‘04

16 Source: Bloomberg; Strategas; FactSet.

-1 Std. dev.: 13.2x 12 8 ‘96

‘00

‘04

Source: Bloomberg; Strategas; FactSet.

‘08

‘12

‘16

‘13

‘11

‘07

28 24

‘12

‘08

‘12

‘16

10 ASSET ALLOCATION COMMITTEE OUTLOOK 4Q2016

Public Real Estate The committee downgraded Public Real Estate from neutral to slight underweight. REITS have had strong performance YTD benefitting from the ongoing search for yield, making valuations richer, although it was acknowledged that continued low rates and search for yield could support the asset class. In September 2016, S&P Dow Jones and MSCI introduced REITs as a separate sector for the first time since the Global Industry Classification Standard (GICs) were created in 1999, which could affect flows in the near term.

WHEN THE DOLLAR RALLY STALLED, EMERGING MARKETS RALLIED 25 20 15 10 5 0 -5

Developed Market Non-U.S. Equities

-10

The committee remains slightly overweight developed market non-U.S. equities overall.

-15

Europe: The committee has a positive outlook on European equities, which continue to look very cheap on many measures, especially compared to U.S. stocks. European stocks stand to benefit from the ECB’s loose monetary policy commitments, while earnings remain below peak levels and might have room to improve. Nonetheless, immigration pressures, geopolitical risk and domestic political uncertainties are weighing on the market. Japan: We maintained our neutral view on Japanese equities. Negative interest rates and the strength in the Japanese yen have been pressuring Japanese stocks, as investors expect these forces to impact corporate earnings. There is no strong evidence that monetary policy has been successful in boosting the economy, which is seeing only slow wage growth despite near full employment. More consumer spending is needed to boost economic activity and inflation expectations, but in fact the savings rate has increased amid policy uncertainty. We do not believe that the Bank of Japan has given up, which suggests potential for more easing in upcoming meetings.

Emerging Markets Equities The committee upgraded emerging markets equities to slight overweight from neutral. Emerging markets have fared well in 2016, partly driven by a rebound in local currencies and commodities as dollar strengthening has paused. We believe that attractive valuations can be found in emerging markets, but the committee warns that China remains a key risk.

-20 Jan-14

Sep-14

Mar-15

Sep-15

Mar-16

Sep-16

MSCI Emerging Markets Total Return Index, 1-year rolling return (%) Nominal Trade-Weighted U.S. Dollar Exchange Rate Index, 1-year rolling return (%) Source: Bloomberg.

Brazil: Political turmoil is abating as former President Rouseff has been impeached and replaced by former Vice President Michel Temer. This, together with firmer commodity prices, has led to a rebound in equity markets— but implementation of planned reforms will be important to maintaining performance. Russia: The rebound in oil prices in 2016 has had positive impact on asset prices. A stronger ruble has also reduced inflation, leading to a rate cut by the central bank, easing pressure on growth. India: We expect to see strong growth of around 7.6% in 2016. India is well positioned with regard to external financing needs and faring pretty well in terms of productivity gains. We continue to see infrastructure development opportunities. China: Recent stabilization in growth and a slow, orderly, bettercommunicated renminbi devaluation has been cheered by markets. Risks are still associated with corporate debt and default levels, the need for greater structural changes and the prospect of U.S. rate hikes.

4Q2016 ASSET ALLOCATION COMMITTEE OUTLOOK 11

REAL AND ALTERNATIVE ASSETS Commodities The committee upgraded Commodities to slight overweight from neutral. The commodity complex has rebounded since early February on the weakening dollar and the decline in global growth concerns, particularly relating to China. Oil has stabilized between $40 – $50/bbl after a strong run from the February lows, and U.S. rig count has ticked up slightly.

Hedge Funds The committee upgraded Directional Hedged Strategies to slight overweight from neutral. Investing conditions over the past year have, for some strategies, been even more challenging than 2008, as high holdings concentration and crowded markets exacerbated poor performance. Redemptions have been pronounced, especially in activist and eventdriven strategies. However, strategies such as hedged equities could experience a tailwind in the form of increased market volatility, and we also believe global macro and trend-following strategies could fare well as central bank and macroeconomic news continue to move markets.

Private Equity and Debt Just as in public market equities, valuations for private equity have increased, but the valuation gap between public and private equity remains wide, making private equity still attractive on a relative basis. Valuations for small- and mid-market buyouts have been more expensive than for some larger-cap buyouts, as deals become more competitive. We continue to be positive on private debt.

Currency USD: We remain overweight in expectation of stronger Q3 growth and consumer spending. Yield differentials are supportive and the downside may be limited by the fact that market positioning remains modest and the currency’s safe haven status. Risks to the view include the Fed shifting focus to international developments, low inflation expectations, disappointing economic data and U.S. election uncertainty. Euro: We have moved to a slight overweight as evidence builds of a gradual growth recovery and more growth-friendly fiscal policies. Stimulus still in the pipeline should support domestic demand and economic activity. Further support comes from the region’s large current account surplus and the potential for risk aversion to trigger capital repatriation. Risks to the view include weaker-than-expected inflation dynamics leading to more ECB easing, and lingering concerns about the banking system.

Yen: We have maintained an underweight view given the wide yield differentials and the increasing concern at the Bank of Japan about the impact of the strong yen and worsening disinflation. Technically, market participants are very long the yen after Brexit and earlier disappointments from the central bank. Nonetheless, being long the yen remains a valid trade during a period of risk aversion and a growing current account surplus, and on PPP and real exchange rate bases the currency does look undervalued. Japanese investors are also hedging foreign assets more aggressively. Pound: We have moved back to a slight overweight, as we feel that sterling is now undervalued following its large adjustment after the E.U. membership referendum. The Bank of England has eased already and is likely to wait for more data before easing again, but so far surveys and other data suggest a limited impact on U.K. growth, and the weaker currency could attract capital in the shorter term. Risks to the view include extended political uncertainty around the relationship with the E.U., the persistent current account deficit, and rising inflation due to the weakness in sterling during a period when the central bank is unable to raise rates. Swiss Franc: We are still underweight the franc as we believe it is still overvalued and the Swiss National Bank will attempt to fight further appreciation. Technically, the Swiss franc remains one of the most attractive funding currencies. Risks to the view include an increase in geopolitical uncertainty and Switzerland’s positive current account balance.

12 ASSET ALLOCATION COMMITTEE OUTLOOK 4Q2016

In Summary The Asset Allocation Committee had never taken an underweight view on U.S. equities during this unusually long cycle, but it happened this quarter. Valuations look full and the ability of the market to turn a blind eye to disappointing earnings may be wearing thin. One reason they have been turning a blind eye is that bond yields have been so low. But evidence that yields are turning up again will likely make it harder to sustain the story that elevated equity market multiples are purely a function of depressed discount rates. It feels increasingly as though another poor earnings season could trigger some long-awaited volatility in markets, and that this time around high-priced bonds may not provide much in the way of diversification benefits. There are still pockets of value in Europe, commodities, and emerging markets, but overall the case for absolute return strategies in portfolios, and strategies that are less market-correlated, appears to be getting stronger.

This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness or reliability. All information is current as of the date of this material and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Neuberger Berman products and services may not be available in all jurisdictions or to all client types. Investing entails risks, including possible loss of principal. Investments in hedge funds and private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in hedge funds and private equity are intended for sophisticated investors only. Indexes are unmanaged and are not available for direct investment. Past performance is no guarantee of future results. The views expressed herein are generally those of Neuberger Berman’s Asset Allocation Committee which comprises professionals across multiple disciplines, including equity and fixed income strategists and portfolio managers. The Asset Allocation Committee reviews and sets long-term asset allocation models, establishes preferred near-term tactical asset class allocations and, upon request, reviews asset allocations for large diversified mandates and makes client-specific asset allocation recommendations. The views and recommendations of the Asset Allocation Committee may not reflect the views of the firm as a whole and Neuberger Berman advisors and portfolio managers may recommend or take contrary positions to the views and recommendation of the Asset Allocation Committee. Any currency outlooks are not against the U.S. dollar but stated against the other major currencies. As such, the currency outlooks should be seen as relative value forecasts and not directional U.S. dollar pair forecasts. Currency outlooks are shorter-term in nature, with a duration of 1–3 months. Regional equity and fixed income views reflect a 1-year outlook. Asset Allocation Committee members are polled on asset classes and the positional views are representative of an Asset Allocation Committee consensus. The Asset Allocation Committee views do not constitute a prediction or projection of future events or future market behavior. This material may include estimates, outlooks, projections and other “forward-looking statements.” Due to a variety of factors, actual events or market behavior may differ significantly from any views expressed.

A bond’s value may fluctuate based on interest rates, market conditions, credit quality and other factors. You may have a gain or a loss if you sell your bonds prior to maturity. Of course, bonds are subject to the credit risk of the issuer. If sold prior to maturity, municipal securities are subject to gain/losses based on the level of interest rates, market conditions and the credit quality of the issuer. Income may be subject to the alternative minimum tax (AMT) and/or state and local taxes, based on the investor’s state of residence. High-yield bonds, also known as “junk bonds,” are considered speculative and carry a greater risk of default than investmentgrade bonds. Their market value tends to be more volatile than investment-grade bonds and may fluctuate based on interest rates, market conditions, credit quality, political events, currency devaluation and other factors. High Yield Bonds are not suitable for all investors and the risks of these bonds should be weighed against the potential rewards. Neither Neuberger Berman nor its employees provide tax or legal advice. You should contact a tax advisor regarding the suitability of tax-exempt investments in your portfolio. Government Bonds and Treasury Bills are backed by the full faith and credit of the United States Government as to the timely payment of principal and interest. Investing in the stocks of even the largest companies involves all the risks of stock market investing, including the risk that they may lose value due to overall market or economic conditions. Small- and mid-capitalization stocks are more vulnerable to financial risks and other risks than stocks of larger companies. They also trade less frequently and in lower volume than larger company stocks, so their market prices tend to be more volatile. Investing in foreign securities involves greater risks than investing in securities of U.S. issuers, including currency fluctuations, interest rates, potential political instability, restrictions on foreign investors, less regulation and less market liquidity. The sale or purchase of commodities is usually carried out through futures contracts or options on futures, which involve significant risks, such as volatility in price, high leverage and illiquidity. This material is being issued on a limited basis through various global subsidiaries and affiliates of Neuberger Berman Group LLC. Please visit www.nb.com/disclosureglobal-communications for the specific entities and jurisdictional limitations and restrictions. The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC. ©2016 Neuberger Berman Group LLC.

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